Moody's lowers PSU long-term rating on Sandusky

PHILADELPHIA — Ratings agency Moody’s Investors Service said Friday that it had downgraded Penn State University’s long-term rating because of the expected financial costs from pending lawsuits related to the Jerry Sandusky sex abuse scandal.

In announcing the change from Aa1 to Aa2 with a stable outlook — the agency’s third-highest investment grade — Moody’s noted that the “ultimate cost of future settlements and possible judgments” along with the number of claims would likely be significant in the coming months and years. The decision also reflected what the agency said were “governance and institutional culture challenges” that faced the school.

But, it added that the university had moved forward by embracing reforms set forth in the Freeh Report and said that the school’s research, fundraising and enrollments remained strong.

“We expect that Penn State will remain a leading U.S. public university with favorable student demand, positive operating performance, high donor support and a strong research position,” the report said.

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David Gray, senior vice president for finance and business, said the move would not affect tuition at the school.

“This action will have no impact on tuition, and fortunately, due to historically low interest rates and no anticipated borrowing in the near future, will have a negligible financial impact,” he said in a statement.

The university said its outlook would be reassessed within the next two years.

Moody’s action followed last week’s announcement by Standard & Poor’s that it had revised Penn State’s outlook to negative from stable citing the litigation over the Sandusky child sex abuse scandal.

Sandusky, 68, was sentenced earlier this month to a minimum 30-year sentence on 45 counts of child sexual abuse. Sandusky, who retired more than a decade ago after a long and successful career as the school’s assistant football coach, was found guilty of abuse of 10 children over 15 years, including attacks inside school athletics facilities. He maintains his innocence and plans to appeal his conviction.

At least four related lawsuits have been initiated against Penn State, and eight legal teams have surfaced to say they represent more than 20 potential claimants. Penn State has expressed a hope to resolve claims out of court and recently hired a law firm with the goal of negotiating settlements by the end of the year.

Penn State trustees were scheduled to meet in special session Friday to consider whether to give a board subcommittee the authority to approve possible settlements.